Written by: Meagan Tydings
In 2011, property taxes accounted for 74.2 percent of local governments’ tax revenue, according to Census Bureau statistics released today. Property taxes are a principal source of revenue for local governments in the United States, providing funding for critical services such as primary and secondary education, public protection, public works, transportation and emergency services.
Nationally, 2011 saw a smaller increase in local property tax revenues (0.7 percent) than the previous two years, perhaps reflecting the effects of the recent economic recession. In general, property tax receipts are a lagging economic indicator due to a one- to three-year delay in property tax assessments. Therefore, while taxes as a whole saw greater gains in 2011 than previous years (an indication of economic growth), property taxes are not showing the same increases.
When you dig deeper into the data on property taxes, you will find that, while they exist in all 50 states, there is wide variation among states and regions in how reliant local governments are on property tax as a source of tax revenue. For example, in Maine, where local governments are the most reliant on property taxes, 99.0 percent of all local government tax revenue comes from property taxes. Compare this with Arkansas, where property taxes comprise just 42.7 percent of local tax revenue, and you get a sense of just how much variation exists. (A state-by-state summary of both local government property tax estimates and the percentage of total tax revenue local governments receive from property tax revenue is presented in the infographic available here.)
There is also substantial regional variation, with local governments in the Northeast relying the most on property taxes. Conversely, local governments in the South and West are the least dependent on property taxes. Localities in many of these states instead rely much more heavily on sales and gross receipts taxes as a funding source (sales and gross receipts taxes include selective taxes on alcoholic beverages, tobacco, motor fuels, and public utilities, as well as general sales tax). A notable exception to this trend is in Texas, where property taxes comprise 83.1 percent of local tax revenue. Unlike many other local governments in the South, Texas localities do not collect motor fuels, alcoholic beverage, or tobacco products taxes, leading them to be much more reliant on property taxes as a source of funding.
As property taxes are the largest source of tax revenue for local governments, any changes in their collections have a major impact on localities. In the coming years, it will be interesting to monitor local government property tax collections at the national, regional and state levels to see how changes in our economy affect this critical local government funding source.